Geography Reference
In-Depth Information
OLI paradigm
, has proved not only to be rather helpful for the purpose
of dealing analytically with the MNE phenomenon, but also to be flexible
enough to adapt to change over time. Thus, it will be used throughout the
chapter as a guideline to the discussion and as a benchmark for assessing
the state of the art of the theoretical thinking on the spatial dimension of
MNEs.
2.2
THE ECLECTIC OLI PARADIGM
The Ownership-Location-Internalization (OLI) paradigm was originally
formulated by John Dunning (1977, 1979, 1981, 1988a) and subsequently
updated and adapted by Dunning himself (e.g., 2000, 2003a, b, 2009b) and
a number of other scholars. The eclectic OLI paradigm has had the capac-
ity to accommodate and compare different major economic, business and
managerial theories aimed at explaining the Ownership (O) advantages,
i.e.
why
firms become multinational; the Location (L) advantages, i.e.
where
firms go to internationalize their activities; and the Internalization
(I) advantages, i.e.
how
firms carry out their multinational experience. The
necessary and sufficient conditions for MNE international operations are
thus subsumed in these three analytical categories:
Ownership advantages:
the firm must possess some specific tangible
or intangible assets vis-à-vis its domestic competitors, as a result of
which the firm could achieve either lower costs or higher product
quality. The possession of unique technological competence, or
of reputation for product excellence, for instance, is a source of
market power: such assets can be replicated easily across different
locations, and the marginal cost of transferring them within the
firm is usually very low. Although O advantages are seen as firm-
specific, they are often intended to reflect those of the MNE home
country.
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Location advantages
: the control of distinctive assets per se, however,
is not sufficient: to be able to cope with the costs of doing business
abroad, the firm must combine its O advantages with some incentive
to locate at least part of its operations outside the home economy.
Locational advantages are inputs, intermediates, services or other
tangible and intangible assets and characteristics specific to some
foreign location. Natural resources, capital and labour inputs,
skills and capabilities, as well as cost differentials, market size and
agglomeration economies, are all examples of the location benefits
available in the host economy.
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